Will Obama Extend the Bush Tax Cuts?

President Obama and his advisers have been sending signals that they’re open to extending the Bush tax cuts before they expire Dec. 31, an expiration that could plunge the economy into another recession.

With economic growth running between a feeble 1.6 percent and 2 percent and unemployment stuck at nearly 10 percent, Obama and the Democrats hold a weak hand in the debate with Republicans who say that this is no time to raise taxes on anyone and that the 2001 and 2003 tax cuts should be made permanent.

After the Democrats’ huge losses in Congress—largely because of a weak, virtually jobless recovery—Obama and his advisers seem to be abandoning their plan to raise the two top tax rates, on incomes over $250,000 a year, anytime soon.

Suggesting that the President may be willing to compromise on a temporary extension of tax cuts over $250,000, White House senior adviser David Axelrod told The Huffington Post last week, “We have to deal with the world as we find it.”When he heard that, Obama described his position in a different way. During a four-nation Asian trade tour last week the President remarked, “I want to make sure that taxes don’t go up for middle-class families starting on January 1. That’s my number-one priority for those families and [for] our economy.”

Conspicuously missing from the President’s remarks was a leftist screed about raising taxes on “millionaires and billionaires.”His sole emphasis on middle-class tax cuts means that he may be willing to sign on to a Republican extension to keep the entire Bush tax cut law from expiring, at least temporarily. In other words, he is in a classic Catch-22 box. If all federal income taxes rise, as they will if the cuts are not extended, Republicans will have a tailor-made political issue in the 2012 election cycle, and Obama will have lost his central campaign promise of the 2008 election.

Before leaving for last week’s trip, Obama said that a GOP proposal to extend all the tax cuts for two years was “a basis for conversation” when he meets with Republican leaders this week to discuss the tax cut extension to be taken up in the lame-duck Congress.

But House Republicans said they are still determined to make all of the Bush tax cuts permanent, rejecting White House overtures to decouple the top rates for a shorter extension.

Meanwhile, House Democratic leadership officials informed Human Events that their plan to raise taxes on the two top income brackets remained on track, though adding that their strategy was still being debated within the party leadership.

“The House Democrats’ position has not changed, though leaders continue to discuss this,” a senior official in the House Democratic leadership told Human Events.

This official, speaking on background because he had not been authorized to discuss internal party strategy, said Democrats were “also discussing [the tax cut vote strategy] with the Senate’s Democrat[ic] leadership, who are talking with Senate Republicans.”

But other House Democrats say that any vote to raise the two top tax rates now would be difficult in the upcoming lame-duck session for two strategic reasons: Two dozen or more Democrats signed a letter to House Speaker Nancy Pelosi before the midterm elections opposing the idea of raising taxes now when the economy remains weak. Perhaps a dozen or more Democrat incumbents ran for re-election, saying they also supported an extension of the Bush tax cuts until the economy strengthened.

Some observers think that still other Democrats, who narrowly won re-election in tough races and may face tougher prospects in 2012, could join them.

The votes could be similarly difficult in the Senate where at least four Democrats favor extending the tax cuts, including Sens. Evan Bayh of Indiana, Ben Nelson of Nebraska, Kent Conrad of North Dakota, and Joe Lieberman of Connecticut. That means Democrats would not be able to the gather the 60 votes needed to overcome a Republican filibuster.

Moreover, 23 Democrats are facing re-election in 2012, and some of them may be unwilling to vote to raise taxes at the start of what looks like a difficult election cycle for the Democrats when taxes and an anemic economy could become the dominant campaign issues.

“An election that’s dominated by the tax issue is a bad election for Democrats everywhere, anywhere and always,” Democratic pollster Mark Mellman told The New York Times last week.

Meanwhile, there is a lot more at stake in the Dec. 31 expiration of the Bush tax cuts than just the lower income-tax rates, which further complicates this legislative battle for the Democrats.

The Bush tax package also contains cuts in the capital gains rates affecting investors, especially middle-class retirees; taxes on stock dividends, on which many retirees depend for their income; the death tax, which would rise significantly on family heirs; and the alternative minimum tax, which has already cut deeply into middle-class incomes.

Perhaps the most vexing political problem facing the White House and the Democrats is the prospect of having to deal with a much more muscular GOP next year when they take control of the House and what some analysts say will be de facto control of the Senate.

The realization of that prospect positions the GOP to present the tax challenge to Obama and the Democrats from a ground of newly recovered relative strength: “Deal with us now on this, or deal with us for the next two years.”